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E-book

Leveraging compliance to protect the value you create

Creating a program that generates trust by addressing risks

May 31, 2024
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Dispute advisory Financial investigations Financial consulting

Middle market organizations are subject to the same challenging regulatory demands and oversight as larger competitors. However, they must contend with these challenges with more limited financial resources, leaving less room for error. As regulations evolve and become more intricate, with government agencies maturing in their experience and ability to enforce regulations, the hard-earned value that management teams have built is becoming increasingly more vulnerable.

Management should concentrate on developing a compliance-oriented culture to protect the value generated within your enterprise. Developing this type of culture requires a strategic approach, with deliberate measures that guide your organization toward robust internal governance, utilizing well-designed internal controls to achieve consistent results.

Read RSM’s e-book to learn more about creating a comprehensive compliance program that organically protects the value of your organization. The e-book contains several key insights, including:

  • The importance of compliance in middle market enterprises
  • Details into when you should start your compliance journey
  • Easy steps toward a compliance program
  • Benefits of compliance
  • How to get the right support

An effective compliance program keeps your company in line with regulatory expectations, builds customer confidence and trust, and serves as a conduit for sustained growth. Learn how to start your compliance journey or strengthen your existing compliance approach.

Leveraging compliance to protect value and support growth

Create an environment where value protection occurs organically

Middle market enterprises are consistent generators of economic value, a process that culminates in events such as initial public offerings or successive investor funding stages.

Upon transitioning to public status, these companies are mandated to establish a rudimentary governance framework, incorporating conventional policies accessible from the public domain.

However, no initial benchmarking exists to assess the extent to which these fundamental policies are integrated and adhered to within the corporate structure.

Acknowledging the veracity of this statement, one might question the role of policies, procedures and compliance within an organization

Policies and procedures are integral to establishing a corporate benchmark for operational conduct. They serve as a conduit for communicating regulatory mandates to employees and offer uniform processes that are designed to yield consistent outcomes when adhered to. Compliance serves as the critical oversight mechanism that supports the alignment of company policies and procedures with the stipulations and advisories of regulatory bodies.

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Advocating for compliance in middle market enterprises

The landscape of the middle market is diverse, with companies exhibiting varied appearances and pursuing distinct objectives, even within identical sectors. Yet, the unifying factor is the imperative of value conservation. In this context, the role of compliance emerges as a safeguard, fortifying the enterprise against potential risks.

Here are a few examples of compliance goals and advantages

A private company with a proven track record of sustainable sales of goods and services

Company goal: Strategically position itself to be an attractive acquisition target for a major industry leader.

Compliance advantage: A framework characterized by well-established policies and procedures signals to prospective acquirers the presence of sophisticated business insights, ensuring an asset with minimal unexpected complications that could undermine the anticipated value sought by purchasers.

Publicly traded medical device manufacturer marketing several products with others in development

Company goal: Sustainable growth by gradually introducing innovative products to the marketplace.

Compliance advantage: An effective compliance department is essential in meeting board of director expectations and mitigating concerns regarding shareholder value protection.

Family-owned boutique with unique goods and services and exponential growth in their market

Company goal: Scaling into a larger operation through the acquisition of external capital while prioritizing adherence to regulations and standards.

Compliance advantage: Integrating compliance expectations while scaling up operations in an evolving enterprise can effectively ingrain compliance discipline into a growing business.

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Knowing when your organization should begin its compliance journey

Comprehensive risk assessment: A key to effective compliance

Conducting a comprehensive risk assessment is widely regarded as a leading practice in organizational management. However, even answering a few targeted risk-related questions can significantly inform your organization about the optimal timing for implementing compliance principles. By addressing these specific concerns, you can better understand potential vulnerabilities and take proactive steps to mitigate risks. Stay ahead in your industry by prioritizing risk management and ensuring your compliance strategies are both timely and effective.

1.  Does your company adhere to uniform procedures when establishing relationships with third-party entities, especially when dealing with overseas vendors and agents?

2.  Is your company navigating an increasingly intricate legal and regulatory environment?

3.  Has the board prompted the management team to develop a compliance strategy that mitigates risks associated with the commercial strategy?

4. Is your company’s industry subject to heightened scrutiny from regulatory bodies?

5.  Is your company’s revenue generation dependent on dealings with government entities at the federal, state or local levels?

Low-hanging fruit: Easy steps toward a compliance program

Establishing a compliance program is a journey that does not happen all at once.

There is no universal blueprint or one method for success. Companies must chart an intentional course toward developing an appropriately sized and tailored compliance program over time.

Strategic planning is key, and conducting an initial gap analysis can provide valuable insights to guide the compliance process effectively.

Leading practices

The following four-step process is effective in establishing and maintaining an advantageous compliance program.

Step 1: Initial assessment

In most instances, companies have a governance structure that can be utilized further. It is important, however, to have an initial assessment to determine objectively how current policies and procedures compare with industry benchmarks. Engaging external industry advisors for this preliminary analysis is a recommended starting point.

Step 2: Gap analysis

By leveraging the output from Step 1, companies should compare all applicable regulatory and enforcement agency guidance based on current and planned commercial activities and the current state of the guidance documentation.

Step 3: Action plan development

A strategic action plan can be developed that details the pathway from your current state to the desired state. This plan is propelled by your organization’s objectives, guided by the strategies outlined in the business plan and is time-bound by its implementation schedule.

Step 4: Action plan execution

Generally, implementing the action plan involves creating and executing new strategies and protocols to develop and/or enhance policies, procedures and training—including developing and delivering employee training. The timing of the action plan components should mirror your company’s evolution and can stretch over multiple years.

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Benefits of compliance

Many companies adopt slogans and marketing taglines to foster trust with their clientele and target audience. Trust is crucial; it’s the cornerstone of consumer spending and the bedrock of ongoing business relations. Sustained business relationships (i.e., repeat business) are built on trust, and compliance is the foundation of that trust. 

Leading practices

A thoughtful, well-executed compliance program that addresses risks inherent in many business activities is the cornerstone for fostering a culture of compliance.

Trust = value

Overlooking the critical link between trust and value may lead to detrimental consequences for a business. History is full of instances where a company’s deeds have diminished public confidence, leading to a tangible decline in their market valuation. Establishing a robust compliance framework is key to effectively mitigating these risks.

Company culture matters

Trust stems from the core of a company’s culture. Companies that intentionally create an environment where they do business according to the rules and subsequently enforce those rules set a tone of business ethics and integrity to be followed by all. It is easier to do the right thing when that is required and rewarded.

Compliance is enabling

Well-informed professionals move with speed and certainty when they are clear on the guidelines. Ambiguity often causes hesitation, which, in a fast-paced business, can be the difference between success and failure. A robust compliance framework empowers employees by ensuring they are well-informed and involved in discussions that shed light on complex issues.

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Working with RSM: Supporting your compliance needs

Compliance program: The RSM team works with you to strategically plan the development of the compliance function over time and assist with its implementation. For clients with compliance programs, RSM performs assessments against leading practices and authoritative recommendations. RSM also facilitates the development of policy and procedure drafts and conducts assessments of enacted policies and procedures to ensure compliance with regulatory requirements, guidance and leading practices.

Governance and risk: RSM works with you to strategically map out the progression of the data privacy function over time and support its maturation process. We also develop and execute compliance programs designed to address global bribery risks, particularly through third parties. RSM executes third-party audits in over 120 countries around the world.

Regulated processes: RSM can develop and execute audit work plans that reflect the elements that enforcement agencies believe are most important, addressing potential issues before they become systemic. For example, the life sciences industry has several statutory price reporting requirements at federal and state levels that begin before product availability. RSM has dedicated teams that can support every aspect of those reporting obligations.

Third-party risk management: RSM assesses existing due diligence processes with methods including AI-enabled tools, recommending enhancements based upon leading practices. Alternatively, we can assist in creating and applying new processes tailored to specific risks. RSM also boasts teams throughout the world who can execute third-party audits based on your work plans or work plans that we developed based upon identified risks driven by industry, regulatory requirements or market conditions.

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Whistleblower program: RSM develops and implements “speak up” program policies and procedures with appropriate boundaries and response mechanisms consistent with leading practices. Additionally, we develop employee training and enhance your overall communication strategy. RSM is also well-equipped to address client incidents, with a global presence spanning 800 offices across 120 countries. Our teams utilize advanced AI tools, enabling rapid issue identification and analysis to meet management and board demands.

Your key to staying one step ahead

Middle market entities are subject to the same stringent regulatory demands and oversight as larger corporations. Yet, they must navigate these challenges with more limited financial resources, leaving less room for compliance missteps.

The hard-earned value that management teams strive to build is increasingly vulnerable as regulations continue to change and become more intricate and as enforcement agencies mature in their experience and ability to enforce laws.

Management must foster a compliance-oriented culture to safeguard the value generated within your enterprise. This endeavor necessitates a strategic approach comprising deliberate measures that guide your organization toward a state of robust internal governance, utilizing well-designed internal controls to achieve consistent results. Achieving this objective is a gradual process, allowing for advancement at a rate that aligns with your organization’s unique tempo and risk appetite.

RSM is equipped with a suite of resources tailored to bolster the distinctive paths our clients embark on. Though there may be commonalities in the process steps, pace and scale, specifics are individually crafted. We aim to design compliance programs that are fit for purpose and that resonate with your unique culture.

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